“Litigation Cost Protection covers the out-of-pocket downside risk of losing a contingency case if that case goes to trial,” said Justin Leto, co-founder, and CEO of Level Insurance.
“We risked it all for our clients, and a loss could have a significant effect on not just our business but on our personal lives,” added Larry Bassuk, the company’s co-founder and president.
“We were discussing the inequities that exist between the defendant and the plaintiff and ways of leveling this historically unfair playing field,” said Bassuk. “Defendants are often flush with cash and resources while the plaintiff has very little financial resources and is fully reliant upon their lawyers to pay all of the expenses.”
The two Florida lawyers created a litigation insurance product called Litigation Cost Protection. The company began offering policies in 2016 in five states. It is now offering policies in 49 states including North Carolina. The policies are underwritten by Aspen Specialty Insurance Company, an “A” rated carrier.
“GO ALL IN”
If the covered case goes to trial and loses, the lawyer then makes a claim for all the money spent on experts, focus groups, travel expenses, depositions, and whatever else they advanced on behalf of the client.
The base policy does not cover attorney’s fees. However, noted Leto, “We recently released a rider to the base policy that allows the lawyer to cover their fees in an amount equal to 20 percent of the underlying cost coverage.”
“We do not adjust the payment of a claim for reasonableness or necessity. Lawyers take on cases, and advance substantial costs, with the intent of achieving a meaningful recovery, not just getting their costs back. Litigation Cost Protection allows lawyers to focus on the merits and upside value of a case,” said Bassuk,
“If you lose, you submit your closing statement and you get your money back, all of it, up to your policy limits,” said Leto. “If you want to hire two or three experts in the same specialty, it’s going to be covered. You’re not going to get some statement from our underwriters saying the reasonable rate for a neurosurgeon in your area is $700 an hour and you paid $1,000, so we will pay you $700. So, lawyers are encouraged to go all-in, spend what they need to win, and know they are protected if they lose.”
ACCESS TO CAPITAL
Getting access to capital to fund litigation can be difficult. “We’re not providing financing, but we’re facilitating financing. The existence of this insurance can help attorneys get more money, money at better rates, or be able to borrow money in the first place,” said Leto.
Policies can be written to name the lender of the funds as a loss-payee. “The lender has some security knowing that if a claim is made, the proceeds will go to them to cover the outstanding balance or whatever the terms of the loan are.”
Litigation insurance allows lawyers, who were limited in the number of matters they could pursue as a result of either financial constraints or risk appetite, to take on more matters and grow their businesses.
Law firms that may have brought in co-counsel in the past to spread the risk of a particular case can now keep those cases entirely in house. “With this insurance coverage, they can hedge their downside exposure and feel more comfortable taking on the whole case themselves,” said Leto.
“This coverage allows lawyers to feel more comfortable putting their own money at risk, which may give them the confidence to accept more complex matters,” said Bassuk. “Some types of cases, like medical malpractice and product liability, are generally high-cost propositions and particularly benefit from this coverage.”
“Our customers also enjoy the leverage this policy provides them during settlement negotiations. Many have provided their opposing counsel with a copy of their declarations page, with the message that the dynamics have changed in this case and that they will try the case if they don’t receive fair value.”
Level does not underwrite policies based on the relative merits of a case. “Sometimes lawyers call us, and they want to explain the case to make sure that we’ll cover it. We always tell them, we’re happy to hear about your case, but you don’t need to explain it to get covered as long as the coverage is purchased within 120 days of service of process to the defendant,” said Bassuk.
SEVEN PERCENT PREMIUMS
The cost of a premium is 7 percent of the policy limit. For a $100,000 policy, the onetime premium payment would be $7,000 plus some possible excess surplus lines taxes and a processing fee. Policies are purchased on-line in a few minutes, ranging from $ 3,500 to $ 250,000. Policies over $250,000 need a more formal review, which typically takes one day, but Level can underwrite a case for as much as $500,000 in coverage.
“We designed the coverage to be very user-friendly and dictated by the buyer,” said Leto. “The lawyer selects the amount of coverage they need if they believe a case is going to go to trial. Attorneys use their experience to estimate approximately what a particular type of case will cost.”
“The insurance is retroactive to the day the lawyer was retained, which means that money that’s already been spent is covered, even though coverage was not in place at the time that money was spent,” said Bassuk. For example, if $25,000 was spent during the pre-suit evaluation, those funds are covered under a subsequently purchased policy.
The North Carolina State Bar issued a written Ethics Opinion allowing attorneys to treat the premium for Litigation Cost Protection as a pass-through expense to clients.
“It’s a disclosure in the client contract. For a lawyer to pass this cost along to the client, just like any other expense, the bar wants the lawyer to make sure the client is aware that the lawyer is taking out this coverage to protect their investment into the case,” said Leto. “At the end of the case, if it went to trial or it settles, the premium is a reimbursable case cost.”
INNOVATING THE PRACTICE OF LAW
“Our industry was lagging behind others as far as its use of technologies,” said Leto. “We consider insurance technology, and certainly the digital underwriting platform built for litigation insurance as a leap forward.”